Manufacturing processes in Mexico have recently garnered increased interest from companies outside of Mexico. The local market has evolved into a viable option for manufacturing outside of the United States, especially given proximity to the U.S. market, which keeps shipping costs down. Cost efficient logistics in conjunction with decreasing production cost savings in other markets (such as China) create further opportunities for companies to improve their margin. Enhanced Mexican employment models have been established to offer workers transportation both to and from facilities as well as childcare, complementary meals during work hours and even laundry service amongst other non-traditional benefits. These incentives along with competitive pay rates for this market are bringing more workers into the labor pool in the cities where manufacturers have begun to operate new manufacturing plants.
New advances in technology, specifically cloud technology and ecommerce capabilities are making it much easier for businesses to remain connected to their suppliers, distributors and manufacturers online during each stage of the manufacturing process. Over the last five years, Mexico’s ecommerce industry has grown 400% according to market research. With major wireless companies committing billions of dollars to expand their mobile high-speed internet services into Mexico over the next two years, it will only get easier for businesses with operations in Mexico to maintain and manage relationships with their manufacturing facilities.
Many companies are seeking shorter supply chains leading to a new trend, that has been coined “right-shoring,” which describes companies that locate their manufacturing and distribution processing where they can be performed both efficiently and with quality materials in a geographical location that is logistically convenient. Recent surveys conducted by third parties suggest that nearly one third of manufacturing executives had or were in the process of near-shoring production. With these considerations in mind, organizations supplying products to the Americas may benefit from situating their manufacturing facilities in Mexico, especially with Mexico’s participation in the North American Free Trade Agreement (NAFTA).
This recent increase in new manufacturing operations opening in Mexico is expected only to grow over the next decade as the cost efficiencies of other markets such as China shrink. It costs approximately 58% less to ship a 40-foot container from Mexico to the United States, as it does to ship the same container from China. Additionally, the same container makes its journey in one fifth the time when sent from Mexico instead of China.
This point has not escaped the automotive industry, which is heavily dependent on manufacturing activities and ships a high volume of manufactured products of significant weight internationally each year. The auto market is expected to expand nearly 3% globally in 2016. Increased sales will, of course, increase the demand for production of vehicles. With the efficiency and proximity of Mexico to the U.S., many automakers have already made the choice to manufacture new vehicles in Mexico. In fact, nearly one fifth of all of the vehicles built in North America in 2015 were created in Mexico. This is double the countries production in 2004. It is expected that by 2020, one in four vehicles made in North America will have been manufactured in Mexico.
This burgeoning manufacturing employment growth has impacted entrenched employers in the local market, forcing them to rethink their workforce engagement practices. As new employers open facilities and seek to entice workers with low cost benefits like meals, transportation, and child care, in lieu of any substantial increase in wages, it is critical that employers with local operations assess their current compensation and benefits packages for their permanent and contracted workforce. Remaining competitive by offering these and other atypical benefits will encourage talent retention and enable businesses to continue to attract new candidates which supports growth. As more organizations seek to re-shore or near-shore production the competition for talent will rise. Simple additions to compensation packages which are low cost but make it easier for workers to come to work, and remain engaged in positions longer, may make all the difference when attracting but more importantly retaining high quality production and manufacturing workers in this market.
The manufacturing industry boasted the second highest positive employment outlook (+15%) for the first quarter of 2016, according to the Q1 2016 Manpower Employment Outlook Survey (MEOS). A steady hiring pace is expected in the manufacturing sector into the second quarter with employers reporting an outlook of +15 in the Q2 2016 MEOS as well. The manufacturing sector’s outlook remains stable quarter-over-quarter and increases by three percentage points year-over-year. “Considering developments associated with the peso-dollar parity and petroleum’s plunging prices, Mexican employers remain resilient and continue to anticipate a favorable second-quarter hiring environment. However, according to the OECD Latin America’s growth pace has been slowed down due to external factors such as the drop of raw material’s global prices, China’s economic weakening and United States’ monetary policy’s gradual normalization. So it will be crucial to elevate productivity to ensure a steady supply of opportunities for Mexico’s job seekers,” said Mónica Flores Barragán, President Latin America ManpowerGroup. “Manufacturing will remain an important sector for the country, mostly in automotive and aerospace industries, where a great demand for specialized technical profiles still exists.”